State Street, a U.S. custodian bank that oversees more than $ 40 billion in assets, is setting up a new digital division, reflecting the pressure on financial services firms to help clients trade cryptocurrencies even as regulators make rules for the industry.
The move came just weeks after the Boston-based bank was appointed by Iconic Funds to serve as administrator of a bitcoin-backed exchange-traded note listed on the Frankfurt Stock Exchange.
Nadine Chakar, who will head State Street Digital, told the Financial Times that the bank is looking to track clients who have increased their crypto exposure by 300% in the past two to three months.
“We are now at a tipping point where this is changing rapidly,” she said. “We get calls from endowments and foundations that receive crypto donations and say what do we do with it? We are seeing companies considering adding crypto to their balance sheets. “
Custodian banks earn commissions by providing back office services such as record keeping and clearing of transactions to fund managers. At the end of March, State Street had $ 40.3 billion in custody or administration and $ 3.6 billion in its own fund management arm.
The creation of State Street’s new digital finance division follows similar initiatives taken in recent months by competitors such as Bank of New York Mellon, Northern Trust and Standard Chartered.
Chakar said State Street prepared for the launch of its digital unit by partnering with academic institutions on research projects and liaising with regulators.
However, the move comes as US regulators prepare to take a more active role in overseeing the $ 1.5 billion cryptocurrency market, fearing that a lack of proper oversight could hurt investors. Earlier this year, banking supervisors, including the Federal Reserve, formed a “sprint team” to establish a “regulatory perimeter” for the industry.
Chakar said, “We will support everything that we are allowed to support in crypto services from a regulatory perspective. The level of communication with our regulators is intense. “
State Street is also waiting for the Securities and Exchange Commission to rule on whether the proposed crypto exchange-traded funds can be listed in the United States. Those awaiting approval include VanEck Bitcoin Trust, which in March appointed State Street as the fund administrator and transfer agent.
Chakar said State Street has “a lot of clients looking to launch crypto ETFs,” but acknowledged that it may be some time before the SEC acts on pending applications such as the one filed by VanEck. .
“If they need more time to get it right and provide the industry with the clarity we need, we’ll continue to work with our customers,” she said. “In this case, patience is a virtue. We will continue to be patient. “
Like many industry leaders, Chakar pointed out that the digital opportunity for State Street goes beyond cryptocurrencies – and includes the use of blockchain technology to make finance more efficient.
“We are turning the industry upside down,” she said.